African growth set for new chapter: Deloitte

African growth set for new chapter: Deloitte

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Business Live - Jan 20th, 12:14

African economies are set to continue growing faster than many developed economies, while shifting trade patterns towards China and India will continue to gain momentum in 2012. 

This is the view of Anushuya Gounden, head of the Africa desk at Deloitte, who was speaking this week at Africa's Frontiers Forum, a seminar on Africa's political, economic and financial outlook for 2012, hosted by Frontier Advisory.

She says news that China's GDP grew by 8.9% in the last quarter of 2011, while slightly lower than the previous quarter, is good for Africa in particular as it points to continued demand for the continent's commodities.

Gounden pointed out, however, that there were challenges emanating from Africa's other key trading partners of Europe and the US.

"The challenge for African economies is going to be the slowdown of the economies of key trading partners. Since we are still predominately in commodities trading, Africa will be negatively affected by a slowdown in global demand. So the impact of the stresses of the eurozone and the deficits in the US will have a knock-on effect."

She believes this slowdown will be countered to some degree by growing trade with India and China. Gounden believes the European debt crisis presents both a challenge and an opportunity for the continent. The challenge is that investors are genuinely hesitant to venture out as their traditional investment destinations of Europe and the US are now in crisis. But at the same time capital has to search for better yield, and a portion of it will come to Africa.

"What was high risk is no longer high risk," says Gounden of the changing view of the continent. "Maybe this is time for Africa to look internally as we stimulate our own intra-Africa trade, which has risen from 6% to 13% of total trade volume. Increases in intra-Africa trade reduce dependencies on the unpredictable economies of our foreign trading partners."

Gounden says the European crisis could result in reduced foreign and development aid for a number of African countries.

The seminar also heard how Africa must now search for quality growth, which comes from a broader range of sectors and trickles down to benefit larger proportions of the populations.

"African countries have to decide how we are going to use foreign direct investment," says Gounden. "We need to decide whether we are going to use it to grow societies or simply widen the income gap".

She identifies Ethiopia as an example of an economy that will do well, growing at 7.5% without the aid of any oil exports. Apart from SA, other key markets include Nigeria and Ghana, Kenya for its regional positioning as well as Zambia and Tanzania.

Gounden also cites Rwanda, with its population of 15 million, proximity to the Democratic Republic of Congo, and the strides it has made to be business friendly.

The real risk to long term sustainable growth is the income disparity between the rich and poor. Unless this is addressed, Africa will face serious challenges in the medium-term.